Best Business Books 2008: Innovation

In Patent Failure, Bessen and Meurer examine the U.S. patent system’s current procedural and operational shortcomings. Considering the book’s titular promise to reveal the dangers posed by judges, bureaucrats, and lawyers, readers might expect an angry broadside leveled at the entire legal profession. On the contrary, Patent Failure is measured and methodical, a provocative, evidence-based book for the lawyer and entrepreneur alike. The authors are nothing if not reasonable men.

The heart of their argument rests on exploring the distinctions between patents and property. The patent system, the authors maintain, isn’t broken and doesn’t need to be discarded. But it needs some serious improvements. Consider the suit brought by the so-called patent troll holding company, NTP Inc., against Research In Motion (RIM, maker of the BlackBerry), in which NTP charged that RIM had in­fringed upon its old software patents for wireless e-mail. Bessen and Meurer note that RIM executives were not aware of NTP’s patents until early 2000 — “ten years after RIM started developing wireless technology, four years after RIM introduced its prototype of the BlackBerry.” The suit nevertheless resulted in RIM paying out US$612.5 million.

“Increasingly, patents fail to provide clear notice of the scope of patent rights,” the authors explain. “Thus, innovators find it increasingly difficult to determine whether a technology will infringe upon anyone’s patents, giving rise to inadvertent infringement.” Unlike property such as land, with which boundaries are distinct and deeds are clear, the topography of intellectual property is in places so ill-defined and treacherous that innovators, and would-be innovators, can easily be discouraged. The authors’ analysis of recent data, for instance, suggests that the cost of patent litigation falls on innovators, thus creating a disincentive to innovate.

Bessen and Meurer conclude that the patent system still works fairly well for the chemical and pharmaceutical industries. It comes up short, though, in software, where abstractions cloud patent claims and invite confusion and litigation. The authors identify the system’s problems as a relatively new phenomenon — one that most likely began in the late 1980s, which happened to be when a profusion of software claims began to be awarded. Patents might work better in the pharmaceutical industry, they conclude, because such patents have sharper boundaries than patents on software.

Of course, what we really want to know is how to fix all this. Patent Failure puts forward a number of suggestions, all explained in greater detail than this space allows. To start with, the U.S. could use a system of specialized patent courts presided over by judges who have special familiarity with patent issues (currently patent suits can be tried in any federal district court). Other changes need not be so expensive. At the U.S. Patent and Trademark Office itself, examiners need to “re­ject vague and abstract claims more aggressively.” Another crucial fix could preempt the fuzzy-boundary problem: The patent office should be able to issue upon request an “infringement opinion letter.” Thus the authors envision a new system where “any party can approach the agency and request its opinion about whether a particular technology infringes upon a U.S. patent.” That sounds like a sensible idea, as does their suggestion for raising patent fees to stem the flood of applications coming into the patent office. Knowledgeable readers may find themselves thinking up other, or better, solutions. But it’s hard to disagree that we need to start considering how the law can better help, and not hinder, our inventors. Inno­vation is hard enough as it is.

An Innovation AgendaWhether we will find ways for big corporations to nurture breakthrough innovations; whether we can make better use of collaborative global networks; whether we should improve on our patent system — all these questions figure into the larger issue of why innovation matters, and how we can get more of it in the years to come. Innovation Nation: How America Is Losing Its Innovation Edge, Why It Matters, and What We Can Do to Get It Back, by John Kao, explores why the U.S. should act quickly to preserve its eminence in new ideas and technologies. The country is now in danger, the author believes, of being surpassed in its inventive capacity not only by China and India, but by Denmark and Finland and a host of other nations.

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